Marketing

The General Electric Screen

THE GENERAL ELECTRIC SCREEN

GE developed a more flexible, multidimensional matrix on the theory that the portfo­lio approach should not be limited to relative market share and market growth. Too great an emphasis on these two variables may mask many other factors that make a business or brand attractive and indicate its strengths. Also, relative share is of great­est importance where economies of scale and “experience curve” effects give the largest producer a significant cost advantage. (An experience curve reflects a decline in unit costs as more units are produced; it is the result of learning or “experience” in contrast to straight economies of scale.) Yet the experience curve does not always apply. As a result of such insights, many strategic planners have gone beyond the BCG approach to other approaches that rely on multiple measures of a firm’s ability to com­pete successfully. One of the first and best known of these alternative approaches is the investment opportunity chart or business screen developed by GE.

In the business screen approach, a strategic business unit (SBU) is classified ac­cording to how well it rates on certain success measures, referred to as its business strength. The industries in which SBUs operate are classified on the basis of measures of opportunity, referred to as industry attractiveness. Among the measures of business strength are the SBU’s product quality, price sensitivity, knowledge of the market, technological capability, image, and so on, whereas industry attractiveness is mea­sured by factors such as intensity of competition, seasonality of sales, legal con­straints, importance of technological change, and the like (Exhibit 2.5). Not all these factors can be measured as objectively and precisely as market growth, relative mar­ket share, and cash flow. On the other hand, the GE method offers much greater flex­ibility and comprehensiveness than the BCG approach.

The business screen is used in the following way: The nine cells shown in the il­lustration are placed in three zones. GE colored these zones green, yellow, and red; hence, this is often called the stoplight approach. The three zones at the upper left in­dicate industries that are attractive and match the SBUs’ strengths. They have a green light” for investment. The three cells along

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the diagonal indicate industries of medium interest. They have a “yellow light” to denote caution; usually these SBUs warrant a strategy geared toward maintaining their present market share. The three cells at the lower right show weak SBUs for which a harvesting or divesting strategy may be the best option. The circles A through G represent the SBUs; their size is in proportion to the size of the industries in which they compete. The pie slices repre­sent each SBU’s market share within its industry.
The GE business screen’s history is representative of the history of strategic planning. Developed in the 1970s by William Rothschild at GE with Mike Allen of the consulting firm McKinsey & Company, the tool was carefully-and laboriously- applied in annual planning and forecasting by GE’s large central planning staff. Now, however, according to GE spokesman Bruce Bunch, the business screen “takes too much time” and is not used at GE any more.²⁹ In fact, neither GE nor McKinsey will claim ownership of it today (in response to inquiries concerning permission to repro­duce it for publication). Once the heir apparent of the strategy throne, this method is a homeless orphan! (It remains a standard in the business school curriculum and im­portant for the concepts it represents, even though it is no longer in widespread use.)
What happened? The SBUs of GE and many other firms that were identified as winners according to the business screen were not necessarily better than other SBUs. They ought to have been-nobody could dispute that these represented great business opportunities. However, GE line managers did not necessarily know how to pursue the opportunities, and someone else-perhaps someone from Europe or Japan-might have pursued an opportunity more effectively. The model leaves out the focus-focus-focus factor after all.
As a result of problems in implementing strategies produced with such matri­ces, bigger companies, GE included, pushed planning back to the line managers and cut central staff. For example, in 1984, Michael Naylor, General Motor’s director of strategic planning, declared that “planning is the responsibility of every line man­ager,” and added that “the role of the planner is to be a catalyst for change-not to do the planning for each business unit.”
The case of GE’s Major Appliance Business Group is instructive. The group’s central planning staff numbered in the 50s at the beginning of the 1950s. Although some of the planners’ calls were right-for example, they identified the Japanese threat back in the 1970s-operating managers resisted the growing authority of plan­ning staff and tended to ignore them. They insisted on ignoring Japan and treating Sears as their major competitor, for example. In other cases, planners were dead wrong-their focus on numbers blinded them to realities of implementation. As GE’s Roger Schipke concluded when he took over the major appliance group (and booted out planners) in 1982, “An awful lot of conclusions were drawn by that group some­what in isolation. We had a lot of bad assumptions leading to some bad strategies.”

Business Week performed an interesting study in 1984, tracking a random sample of 33 planning strategies described in the magazine in 1979 and 1980. The tally: 19 clear failures and only 14 clear successes.³² A lot of planners lost their jobs that year!

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Competitive Position Matrix

The matrix can be modified to analyze the position of products relative to their com­petitors. In Exhibit 2.3, the top ten beer brands are plotted using 1990 data. The mar­ket growth rate is not used, because it is the same for every brand in this market (total 1990 U.S. beer sales grew 3.1 percent over 1989, but were flat for the three previous years). Instead, the growth in each brand’s sales is used to show which grew faster. Sometimes, as in this illustration, each brand’s growth is made relative to the growth of the market to show whether its share is growing or shrinking. (To do this, divide a brand’s annual revenue growth or unit growth by the market’s annual growth, or by dividing current market share by last year’s market share to find the percentage of change in market share, as in Exhibit 2.3.)

Exhibit 2.4 shows the data we used to create a competitive position matrix for the U.S. beer market. This kind of analysis can show the market in a new light. The leader in sales, Budweiser, had a strong relative market share, but was weak on the growth dimension of the matrix-its share was slipping. The hot brands were Coors Light and Miller Genuine Draft, which gained a significant share in 1990. The cash flow implications of the BCG matrix do not necessarily apply, however, because com­peting brands may be owned by different companies. This analysis can be taken a step farther by identifying each brand’s brewer and comparing the company portfo­lios, or by plotting companies instead of brands. One could learn, for example, that Anheuser-Buseb had the largest share, 43.4 percent, and that its sales grew 7 percent, more than twice as fast as the total market. Also, one would find that brewer’s share is closely related to performance. The top three-Anheuser-Buseb, Miller, and Coors-were responsible for all the market growth in 1990. (Of course, you would need to update these statistics to the latest available before making any “real world” decisions about how to market a brand of beer, or any other product!)
EXHIBIT 2.4 COMPEITIVE POSITION ANALYSIS

Calculations:
25.2/25.9 = 0.97; 0.97 – .1 = 0.027 x 100 = – 2.7%
25.2/10.5 = 2.4
One might also plot a matrix that compares light and regular beers, which would indicate that, of the top 25 brands, the only light beer to lose share in this sample pe­riod was Old Milwaukee Light. Altogether, light beers in 1990 had about a 30 percent market share and annual growth of 12.5 percent. And some background reading on the beer industry would reveal that Old Milwaukee Light’s sliding share reflected the fi­nancial problems of its parent brewer, Stroh, which cut Old Milwaukee’s advertising and other marketing expenses in 1989 in an effort to harvest profits from its brands and thus lost 12 percent of its volume. This analysis would indicate that light beers are currently the high performers of the beer market.
This example illustrates a fundamental principle of the new strategic planning:

The firm must use available techniques and information creatively to gain new in­sights into its position and opportunities. It is not enough to crank out the same old matrices that were used last year, even if they are as venerable as the BCG matrix. It is important to ask intelligent questions (“Are light beers fueling the growth in the beer industry?” “Is the leading brand losing share?”), and to take a creative approach to analysis to answer such questions clearly. The firm that asks an intelligent question before its competitors do may be able to seize an opportunity first.²⁶
It is fair to say that nobody uses the BCG matrix as the cornerstone of plan­ning any more. It exists only in the textbooks littering the nation’s business schools. And yet there is a fundamental wisdom to this planning model that should not be ig­nored. Perhaps it even makes sense to bring the tool back again-at least in modi­fied form.
The strongest argument for the BCG matrix is that market growth rates and market shares are still good indicators of strategic potential. After all, which do you think will do better, all else being equal: A brand with low share in a mature, slow-growth market, or one with high share in a dynamic, fast-growth market? You see- there is something worth saving about it after all!
The continued relevance of the BCG approach is underscored by a recent “breakthrough” contribution to the strategy literature from two top people at Bain & Company, which bills itself as an international strategy-consulting firm. The authors of the Bain study examine the conventional wisdom which “holds that market share drives profitability” by examining profitability and other variables in a wide selection of consumer products. Their finding? Surprise! “Instead, a brand’s profitability is driven by both market share and the nature of the category, or product market, in which the brand competes.” Specifically, “A brand’s relative market share has a dif­ferent impact on profitability depending on whether the overall category is domi­nated by premium brands or by value brands to begin with.”²⁷ To put this finding in the context of the BCG matrix, it turns out that in the competitive consumer prod­ucts markets of the United States in the 1990s:

T Relative market share is still an important predictor of ROI,
T But it is still mediated by the attractiveness of the market,
T However, market growth rate seems less important than whether the
market is brand or price oriented.
Note the qualifier here-that the attractiveness of the market, while still a key to returns, is not well represented by market growth rate. This may reflect the sad re­ality that most of the brands in the study are in similarly mature, slow-growth mar­kets. But whatever the reason, the point is that a matrix approach to predicting future success would work today, as long as you modified the matrix by substituting a premium brands-versus-discount brands variable for the slow-versus-high growth variable of the original matrix. Otherwise, the portfolio approach’s reliance on a market share variable and a market attractiveness variable is still sound.
We want to expose you more deeply to this school of strategic planning by show­ing you variants on the BCG model that permit the user greater control over the vari­ables, thus making it easy to adapt the model to changing market conditions.

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Portfolio Analysis: is It Ready for a Rebirth?

PORTFOLIO ANALYSIS: IS IT READY FOR A REBIRTH?

Perhaps no company has contributed more to the “old” strategic market planning than General Electric (GE). In the 1970s, GE reorganized its forty-eight divisions and nine product lines into strategic business units (SBUs). Each SBU consists of one or more products, brands, company divisions, or market segments that have some­thing in common, such as the same distribution system, similar customers, or the same basic technology. At the same time, each SBU has its own mission, its own dis­tinct set of competitors, and its own strategic plan. About 20 percent of the largest manufacturing firms in the United States have adopted the SBU system. Recently, for example, Campbell’s Soup Company established eight SBUs: soups, beverages, pet foods, frozen foods, fresh produce, main meals, grocery, and food service. The SBU structure’s great merit is that it defines the company according to the markets it serves-one SBU per market. Smaller companies are often focused on a single mar­ket, but larger ones easily lose their marketing orientation without the SBU structure to force it.

The Boston Consulting Group (BCG) suggested in the 1970s that SBUs should be managed as a portfolio the way financial investments are managed (Exhibit 2.2a). Differ­ent SBUs may have different missions, but all work together to achieve the organization’s overall objectives. Top

Optimum Cash Flow

management decides which business units or brands to build up, maintain, phase down, or eliminate. In short, the organization is continually attempting to improve its portfolio of SBUs by divesting itself of units that do not perform well and, at the same time, acquiring promising new ones (Exhibit 2.2b).
The BCG approach focuses on three factors: market growth, the SBU’s relative market share, and cash flow. An SBU’s relative market share is determined by dividing its market share by that of its largest competitor. Thus, if Gillette’s razors-and-blades SBU has a 65 percent share of that market while Schick, its largest competitor, has 16 percent and BIC has 11 percent, their relative market shares are:

Gillette 4.1 (65%/16%)
Schick 0.3 (16%/65%)
BIC 0.2 (11%/65%)

The dividing line between high and low relative market share is set at 1. Only the market leader can lie to the left of this point. The more dominant the leader’s share, the stronger its position in the marketplace.
SBUs are categorized by the amount of cash they generate, resulting in the fol­lowing four categories:

1. Stars-These SBUs are in industries with high sales growth rates, and they have a high relative market share. The stars are the leaders in their markets. They need continual inputs of cash to maintain their high growth rates. Even­tually that growth will slow and they will become cash cows.

2. Cash cows-Cash cows are SBUs with a higher market share than competi­tors in a low-growth market. They have high sales volume and low costs. Thus, they generate more cash than they need; the excess cash can be used to support other SBUs. At Gillette, the razors-and-blades SBU generated 32 per­cent of the company’s 1989 sales revenues, but 64 percent of its profits. Profit margins on this SBU were a whopping 34.7 percent, compared with 15.2 percent for stationary products and 6.9 percent for toiletries.²⁵ Domestic beer is a cash cow for Anheuser-Busch, supporting the new product lines discussed earlier.

3. Question marks-These high-growth, low-market-share SBUs are problems for management because their future direction is uncertain. They require a lot of cash simply to maintain their position, let alone increase their market share. Management must decide whether to pour in enough cash to make them into leaders; if not, these SBUs probably will be phased out of the portfolio.

4. Dogs-Dogs are low-growth, low-market-share SBUs. They may provide enough cash to support themselves, but they are not a substantial source of funds. Such SBUs often are in the process of entering a particular market or phasing out of it. Either way, their position is below average.
The distribution of an organization’s SBUs in the different categories provides a profile of the firm’s health. But such an analysis also needs to consider the direction in which each SBU is moving. Organizations prefer to turn question marks into stars and, as growth slows, into cash cows that can be used to fund other question marks. This is precisely the sequence that occurred at Gillette, where the excess cash from the razor blade business was funneled into disposable lighters. Eventually Gillette’s Cricket lighter became a star.
The portfolio approach aids in the setting of marketing strategies. The follow­ing basic strategies are closely related to this approach:

· Build-This strategy is appropriate for question marks if they are to grow into stars. The firm invests heavily to improve product quality, develop promo­tional campaigns, or subsidize price reductions-all in an effort to beat the competition.

· Hold-This strategy is used to protect cash cows and stars that are strongly en­trenched. The market leader simply defends its market share and maintains cus­tomer loyalty.

· Harvest-When the future looks dim for a weak cash cow, a dog, or even a question mark, the best strategy may be to harvest as much profit from it as possible before letting it go. Marketing (especially promotion) and research and development expenditures are curtailed; economies of production are empha­sized; and customer services are reduced. In short, all costs are lowered as the SBU is “milked” of its cash-generating potential.

· Divest-When a dog or question mark has no future, it is sold off or dropped from the portfolio because the cash needed to fund it can be used better else­where.

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Situation Analysis – Environmental Scanning & the Organization-Looking Inside the Strategic Window

In the next step of strategic planning-the situation analysis-planners traditionally analyze information about the firm’s environment, especially its customers and com­petitors. This environmental scanning involves looking at the present state of the en­vironment and forecasting trends in its various aspects. Planners also look inward and analyze their organization’s strengths and weaknesses. They assess not only tangible, observable resources, but also intangible resources, such as the skills of personnel and the company’s image. The focus then shifts to matching the opportunities that exist in the environment with the firm’s particular strengths. The outcome of this analysis is an understanding of how to take advantage of the opportunities by using the dis­tinctive competencies of the organization. It may also require some revision of previ­ously set goals. This crucial step in the strategic market planning process may utilize analytical tools such as the Boston Consulting Group’s growth-share matrix, which will be discussed shortly. It also draws on an organization’s ongoing efforts to monitor its business environment.

Environmental Scanning

A navigator would not plot a course without first establishing the ship’s position and examining a chart with care. Nor should a manager develop strategy without examin­ing the environment. As a practical matter, it is essential to simultaneously monitor the business environment and develop and refine strategy on an ongoing basis.
But what do we mean by the business environment? In the world of strategic planning, this term encompasses any and all important events-and even undercurrents that might lead to future events-in a wide range of areas. Classically, an environmen­tal scan looks for both opportunities and threats, and does so in the following areas:
The social/cultural environment, including the beliefs, values, and norms of be­havior that are learned and shared by people in the business’s environment.

The competitive environment, including changes and objectives at established competitors, plus any and all new competitive threats from entrepreneurs, for­eign companies expanding into the market, and so forth.

The technological environment, including any and all new technologies that might impact the products and/or processes of the industry or related industries.

The economic environment, including any trends that might affect the company directly, plus all that affect consumers and their spending patters.

The political/legal environment, including any legislation that might alter the rules of the game in the firm’s industry and markets. (Anyone in health care right now is used to worrying about this factor!)

The natural environment, including the natural resources the business and its customers depend on, any surprises the weather may dish up, and issues con­cerning the firm’s environmental impact and how to minimize it.
As the breadth of this list makes clear, any full-blown situational analysis must cover a broad range of issues. It is a demanding research project. And yet, even when done carefully and thoroughly, such scanning may fail to reveal the most important threats and opportunities in today’s highly turbulent business environments. The most exciting and important new directions are often difficult to tease out of the mass of data and piles of reports. Managers and marketers must learn to listen for weak signals as well as strong ones. And, increasingly, the eyes, ears, and instincts of the entire organization are required to find and amplify these weak signals in time for appropriate action. That is why Henry Mintzberg refers to modern strategies as “emergent.” They may spring up, like weeds, from unexpected sources anywhere in the organization, or even beyond its doors in the network of suppliers and distribu­tors surrounding it. Scanning can no longer be left to a centralized planning staff-it is so important that everyone needs to be involved.

The Organization-Looking Inside the Strategic Window

Once the external environment has been analyzed, planners traditionally examine the firm’s resources, both tangible and, often more important, intangible. Planners should thoroughly review the tangibles-the firm’s financial resources, production and distri­bution systems, and the like. They also should analyze intangible resources, such as the company’s image and culture, the creative and administrative talent of its personnel, employee attitudes toward the company, and the company’s vulnerability to competi­tion. These intangibles, though difficult to assess, can make the difference between success and failure.
Does Starbucks have the core competencies and financial deep pockets needed to go head to head with leading consumer brand marketers in a battle for grocery store market share? We don’t know for sure, but if we had to make the decision, we would start with a brutally honest examination of the organization itself.

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Market Share As a Strategic Goal

Agreat many marketing missions and objectives rest on the assumption that a domi­nant share of your market is a sure-fire recipe for success. Think again about the Starbucks mission-”to dominate every place coffee is sold.” This is in fact a market share objective, and it makes sense only if there is some payoff for holding a dominant share of markets.
Because of the importance of assumptions about market share, a group of pro­fessors with the Strategic Planning Institute (SPI) has assembled a highly detailed database of information on the performance of thousands of individual businesses and business units over four years or more. It tracks the standard financial measures, plus many of the marketing and strategy variables thought to drive financial perfor­mance. In this Profit Impact of Marketing Strategy (PIMS) database, two striking trends appear. First, on average, market share and return on investment (ROI) vary together. A smaller share is typically associated with lower ROI, and vice versa. In fact, the relationship is virtually a straight line, varying from an average ROI of 11 percent for businesses with market shares of 10 percent or less, up to an ROI of 40 percent for businesses with shares of 50 percent or more. Professors Buzzell and Gale write that:

The primary reason for the market share-profitability linkage, apart from the connec­tion with relative quality, is that larger share businesses henefit from scale economies. They simply have lower per-unit costs than their smaller competitors. These cost ad­vantages are typically much smaller than those once claimed hy overenthusiastic pro­ponents of “experience curve pricing strategies,” but they are nevertheless substantial and are directly reflected in higher profit margins.
Second, as their brief aside about quality hinted, the data also show a clear relation­ship between quality relative to competitors, as perceived by customers, and both market share and ROI. The data support the arguments of quality advocates that there does not need to be a trade-off between quality and cost. Higher quality seems to be associated with higher share and lower costs (thus higher margins and ROI) in actual operating data from thousands of companies.
So what happened to Xerox? If firms gain 3.5 points of ROI for every 10 points of market share on average, as the PIMS database indicates, Xerox’s 86 percent share in 1974 should have given it a greater than 25 percent lead in ROI over its closest com­petitors. How could anyone possibly afford to challenge Xerox? This is exactly what its management assumed, and what many leaders in other industries assumed as well. (The U.S. auto industry is a classic example.) But this assumption ignores the impact of quality. Higher profits do not guarantee dominance-it depends on how you spend them! Xerox did not use its cost advantage to maintain its leadership in quality and product superiority, and customers do not share planners’ regard for market position.
Market share represents customers’ past purchases, not their future purchases- something planners tend to overlook-and if a better product comes along, future pur­chases will not remain consistent with past purchases. Market share is a good objective for management, but it is not an impenetrable shield against competitors, as Xerox learned.

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Strategy as a Focus Rather Than a Plan

One reason strategic planning will never die is that without a strategy of some sort, there can be no clear focus. Many organizations are resuscitating strategic planning, in spite of their inability to see very far into their futures. But the role of strategic planning is fundamentally different. Let’s look at this interesting transition.
In most industries today, events are so fast-paced and unpredictable that no­body can write a plan or create a forecast worth the paper its printed on. H. Igor Ansoff has documented this change in an extensive series of studies. Ansoff’s formal title is Distinguished Professor of Strategic Management at the United States Univer­sity in San Diego-but many people in the marketing field refer to him as “the father of strategic planning” because of his important work in the development of this field. In recent years, his work has provided perhaps the strongest documentation that many of the conventional planning methods are antiquated. Most striking is his mea­surement of what he terms the turbulence level of a business’s external environment. Here is Ansoff’s turbulence scale:

Further, he has demonstrated in a range of studies that “a company’s profitability is optimized when a company’s strategy and management capability both match the tur­bulence in the company’s environment.”iS This means, for example, that if your orga­nization used to face a turbulence level of 3 but now faces a level 4.5 environment-a transition typical of most industries over the last two decades-then the old strategies and management approaches will lead to failure today just as surely as they led to suc­cess yesterday. In the high-turbulence environments most businesses now face, Ansoff finds that entrepreneurial and creative strategies work, while reactive and anticipa­tory strategies do not. Yet conventional planning cycles, in which data is gathered, numbers crunched, forecasts generated, and long-term strategies formulated, are gen­erally reactive or at best anticipatory. Not entrepreneurial, and rarely creative.
Which is why, as we observed earlier, formal planning processes were downsized almost out of existence in many companies. And why Tom Peters, that most popular of management gurus, wrote that “madness is afoot” and advised managers that, in order to thrive on the chaos around them, they should abandon their long-range strategic plan in exchange for “a strategic mind-set” so as to be able to foster “internal stability in order to encourage the pursuit of constant change.”i9 In other words, strategic plan­ning as usual is dead.
But strategic planning is experiencing something of a rebirth in the late 1990s. (As Mark Twain once said, “The reports of my death are greatly exaggerated.”) Per­haps the most striking symbol of this rebirth is the rising stature of strategic planning in what was supposed to be its replacement-total quality management. And this is seen nowhere more clearly than in the annual judging criteria for the Malcolm Baldrige National Quality Award. These criteria are modified every year in an effort to provide a better standard for the management processes of U.S. firms, and lately strategic planning has emerged as a key component of the criteria. According to Vicki Spagnol, a member of the award’s board of examiners, “In recent years, Category 2, Strategic Planning, has undergone significant evolution, which has expanded its scope and made it more central to the overall criteria.” She summarizes the change as follows, “The scope of planning was broadened from planning for quality and op­erational improvements to developing an overall business strategy. Greater emphasis was also placed on translating strategy into action-oriented ‘key business drivers,’ which could be used to deploy strategy throughout the organization.” Why bring strategic planning out of moth balls, especially when many people argue it is what led to the need for new approaches like total quality management and reengineering in the first place? Because, in Spagnol’s words, “The faster the rate of change, the more important it is to understand the dynamics of the marketplace and to have a strategy that will enable an organization to outperform its competition over the long haul.” Fast change makes a good strategy more essential than ever. But-and here is the paradox-fast change (and the high turbulence with which it is typically associ­ated) makes coming up with a good long-term strategy almost impossible. Whatever knowledge base the strategy rests on will be antiquated by new events before the im­plementation is half-way complete. How do you resolve this paradox-this great need for good strategy in conditions which make it terribly hard to design good strategy?
The most successful answer-and the key to strategic planning’s rebirth- seems to be to use strategy as a source of focus and direction, not as a blueprint. Lis­ten to Steve Roemereman, vice president and strategy manager of Texas Instruments’ Defense Systems & Electronics business (which won the Baldridge Award in 1992):

Most of those companies that had a great decade did it not by planning out forty great quarters. They had a strategic plan, and then they executed forty great quarters more or less along the lines of the plan. Their people knew where the company was going, and the shared knowledge made it easier to get good quarterly performance.
In other words, the strategic plan gave everyone a common focus, a vision of where the company wanted to go. And then everyone did whatever seemed necessary to get there. The role of this plan, then, is to provide focus rather than direction, to give a common purpose rather than to give specific instructions. The entrepreneur­ial, creative elements aren’t in the plan. They have to be provided by the people who implement it. Nobody can forecast those. But without some agreement on where the entrepreneurship and creativity is supposed to take you, everyone would pull in dif­ferent directions.
In order for strategic plans to perform this focusing role effectively, everyone must have what is coming to he called a line of sight, which is a clear view of the con­nections between their own work and the big picture of the organization’s strategy. Without it, they cannot improvise without losing the tune. The American Society for Training and Development reported that the goal alignment provided by such lines of sight “has a significant impact on employee performance” because it “enables em­ployees to see how their work helps the company succeed.”22 Thus strategy still has a vital role-perhaps an even more vital role-because in turbulent markets it may be the only constant, the only clear beacon to aim for, amid the chaos.

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Do You Know Your Way?

The focus principle (or should we call it the “focus-focus-focus principle”?) is close cousin to the “don’t-get-lost” principle of marketing strategy. Sure, you should always try to give customers what they want and need-but within your abilities. If you allow the search for hot new marketing ideas to take you too far from your core com­petencies, you can lose your focus and wander in the strategic desert. Getting lost is a sure-fire way to lose your focus.
Despite the wisdom of customer-oriented market definitions, it can be very dangerous to move into unfamiliar territory, as Anheuser-Busch discovered along with Levi Strauss in the 1980s. Anheuser-Busch’s management felt that its single-minded emphasis on the domestic beer business did not give it any way to use the ex­cess cash it generated. As a result, the company redefined itself as a global food and beverage business and introduced the premium-priced Eagle brand of pretzels, corn curls, tortilla chips, and nuts. It also increased emphasis on its Dewey Stevens, a diet wine cooler; low-alcohol LA; and soda and bottled waters. The company’s focus was on making better use of the firm’s distinctive competency in beer distribution and developing new products for its existing markets.
By 1988, the company was retrenching heavily, having put up for sale its three bottled water products and its California winery. “The beer guys weren’t wine or water guys,” said a former company executive. The company “didn’t know how to sell the stuff properly.” And in the wine cooler market, where all products are already perceived as “light,” Anheuser-Busch could not establish a foothold. Perhaps the greatest trouble spot, however, rested with the company’s Eagle brand of snacks. On top of tremendous capital expense for the start-up, Eagle managed to lose several million dollars each year following its inception.
A more recent example is provided by Starbucks Coffee Company, which made fast work of the coffee market by creating the largest chain of cafes in the United States during the 1990s. As this book heads for the printer, Starbucks is going in a new direction-the supermarket shelves. Procter & Gamble (P&G) Company’s Folgers brand is the leader in supermarket sales of coffee beans, followed by Kraft Foods’ Maxwell House. But not for long in the view of Starbucks’ president Howard Schultz. He too sees the marketing implications of his mission, which says Starbucks has to be the dominant force in the coffee business.
Is Starbucks making a classic marketing blunder? Will it lose its way in the bat­tle for supermarket shelves-as many contenders have over the years? Is this new bat­tleground too different from the old one, a dangerous loss of focus? Or is Schultz right that the company can beat out P&G and Kraft at their own game because of the growing value of the Starbucks’ brand name? Only time will tell-but we are willing to guess. We bet you won’t find Starbucks dominating shelf space or register receipts at the average grocery store in the year 2000. And we suspect the expansion of its chain of cafes may slow as management diverts attention to the grocery store battle instead. But we have to hedge this bet with the comment that some of the greatest strategic breakthroughs sounded far more hair-brained than this strategy does at in­ception-you can never be sure. Starbucks just might pull off a coup in the coffee aisle. But we will be surprised if they do!
The many cases in which marketers got burned by overextending lead us to sound a cautionary note-it can be hubris to pursue unfamiliar products and markets, even if the customer demand is clearly there. There appear to be practical constraints on how far a field a company should go in pursuit of the marketing concept. However, to be fair, a single-minded focus on a firm’s familiar products and technology also can land it in big trouble. Remember Levitt’s marketing myopia described in lesson 1:When cars and trucks came along, railroad companies ignored them-and entered a long, slow decline. Why? Because they saw themselves as specializing in laying track rather than in transporting people and freight.
Maybe it would be as bad a mistake for Starbucks to see itself in the coffee store business instead of the coffee business. Are they really in the restaurant business? (Hmm. Got to think about that one.) There is often a fine line between the sort of marketing myopia that doomed the railroads and the overconfidence of an Anheuser­Busch (or Starbucks). The success of Levi’s Dockers illustrates the importance of ex­pansion that makes sense to the customers. Another product line for established customers is a safer bet than something totally new to the company, and smart strate­gists pursue the safe bets whenever there are any to be found.

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Three Secrets of Strategic Success: Focus. Focus, and Focus

The Levi Strauss story teaches another important strategic lesson-the importance of focus. And focus. And focus! It is hard enough in a competitive market to do even one thing really well, well enough that you attract and retain customers better than com­petitors. When companies have a clear focus, they are trying to do one thing well, which at least gives them a fighting chance. As soon as their mission begins to sprout “ands,” they are at risk of doing nothing well. That is certainly a point Andrew Grove, president and CEO of Intel Corporation, takes to heart. He argues that it takes every erg of energy in your organization to do a good job pursuing one strategic aim, espe­cially in the face of aggressive and competent competition. Without exquisite focus,

the resources and energy of the organization will be spread a mile wide-and an inch deep. If you’re wrong, you will fail. But most companies don’t fail because they are wrong; most fail because they don’t commit themselves. They fritter away their mo­mentum and their valuable resources while attempting to make a decision. The great danger is standing still.

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Drivers of Strategy: Vision. Mission. And Objectives

MARKETING AND STRATEGY
Using Tested Concepts and New Ideas for Marketing Strategy.

DRIVERS OF STRATEGY: VISION. MISSION. AND OBJECTIVES
Who are we and why are we here? Such questions may baffle philosophers for cen­turies, but businesses and their employees don’t have the luxury of debating them forever. In business, we must resolve the fundamental questions, establish their oper­ating values and principles and seize upon a mission. Otherwise we cannot get around to the urgent necessity to do something. As Will Rogers once said, “Even if you’re on the right track, you’ll get run over if you just sit there.”
The well-springs of marketing strategy are at the top of the organization, where the senior executives are expected to earn their bloated paychecks by establishing a bold, profitable vision and mission.
When Howard Schultz of Starbucks says, “We will dominate every place coffee is sold,” he is articulating a mission that his people can readily translate into market­ing strategies.’0 With this mission in mind, it is obvious, for example, that the Star-bucks brand of coffee must be marketed in grocery stores, not just through the Starbucks chain of stores.
From the corporate mission, the organization (in conventional planning) is sup­posed to develop a set of objectives that will direct it over a 3- to 5-year period. These objectives are generally stated in terms of sales growth, market share improve­ment, profits, innovation, acquisitions, and risk reduction. (In the new strategic plan­ning, however, the validity of long-term forecasts and plans is no longer taken for granted; the environment changes too rapidly. More on that in a moment.)
From general corporate objectives flow more specific marketing goals. These goals may focus on overall sales increases, but usually they are somewhat more de­tailed, calling for sales increases by product class, geographic region, or type of cus­tomer. It is generally assumed that market share improvement translates into higher sales volume, and higher volume means lower production costs and higher profits. Thus, marketing goals are often expressed in terms of improvement in market share, or the percentage of the total market served by the company. Market share is the chief measure of how well an organization is doing relative to its competitors.
Strategic market planning takes its direction from the overall organizational goals. Although we often think of an organization as simply setting targets for sales, profits, return on investment, and the like, organizations usually have broader, less measurable objectives. An organization is, or ought to be, guided by the invisible hand of its purpose or mission. In this sense, the mission of computer companies is to pro­vide information, and that of telephone companies is to facilitate communication. Rather than considering itself a copier company, Xerox sees itself as an “office of the future” company. Some organizations have even more abstract missions: Consulting firms can be seen as providing education, museums as preserving a cultural heritage, and so on. These missions guide the organization’s marketing efforts and shape its strategies and plans.
The corporate mission depends on how the organization defines its business. That definition is based on the answers to two questions: “What business are we in?” and “What business should we be in?”
Sometimes too broad a business definition can create problems for an organiza­tion. For example, Levi Strauss, a leader in the apparel industry, added many new lines throughout the 1970s, including sportswear, youth wear, and ski clothes. In a 1979 talk to securities analysts, the company’s president stated that Levi Strauss should be looked upon “as a consumer-products company that just happens to be in the garment business.” As one worried analyst told Fortune, “If they ever really start to believe that, it’s trouble.” Such a broad business definition would allow the com­pany to add a whole range of products with which it has no marketing experience- cereals, automobiles, detergents, watches, and so on.
Although it did not take such a wildly divergent approach, Levi Strauss did move into higher priced, more fashion-oriented lines. And the skeptical analyst ap­parently was correct. The period from 1980 to 1982 produced a 10 percent drop in sales for Levi Strauss and a 76 percent plunge in net income. In 1982, the company eliminated many of its upscale product lines and returned to its emphasis on mid-priced, middle-class-oriented apparel, especially its well-known jeans. Its president then told Business Week, “We’ve realized that just putting Levi’s name on something isn’t enough to gain instant marketing acceptance.” Now it sees itself as an “adapt­able” company, able to take advantage of opportunities to which its distinctive com­petencies are applicable. For example, with the apparent emergence of a global generation of teens with similar tastes and values, Levi Strauss has been quick to try its hand at global marketing. It sells a 1960s style across the planet, and it is even gaining popularity in the United States.
The company’s product mix is now somewhere between the narrow jeans-only strategy of its early years and the unfocused consumer-products focus of the early 1980s. New products generally have some tie-in with the jeans identity and market, meaning that it makes sense to consumers for Levi Strauss to sell them. The current star of its product line illustrates this point. Dockers is a line of casual slacks for men made from a cotton twill that is softer and more comfortable than denim. It is tar­geted at aging baby boomers, the same customers who made jeans a runaway success in the 1960s and 1970s. According to Alan Millstein, editor of Fashion Network Re­port, “Levi Strauss really understood the forty-something generation,” who “have been living off beer, pretzels, and microwave popcorn. Their waistlines have ex­panded… and they can’t fit into their jeans.”’4 But they can fit into Dockers, and the success of this product fueled a surge in Levi Strauss’ income in 1991 and laid the foundations for Levi Strauss’ expansion into the growing market for casual office clothes during the mid-to-late 1990s.

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The Strategic Market Planning Process

MARKETING AND STRATEGY
Using Tested Concepts and New Ideas for Marketing Strategy.

THE STRATEGIC MARKET PLANNING PROCESS

The strategic planning process traditionally starts with the setting of objectives for the organization as a whole and continues with the development of marketing goals that reflect those objectives. Next, the strategic planner conducts the situation analy­sis, beginning with an in-depth look at the environmental trends that will affect the organization. The planner can be said to be looking outward through a “strategic win­dow,” viewing the present and predicting the future. Then the planner looks inward through the strategic window to analyze the organization’s strengths and weaknesses. A key purpose of this step is to assess the firm’s distinctive competencies, that is, what it can do better than other firms.These two steps, external and internal analysis, are the cornerstones of tradi­tional strategic market planning. They provide the information base from which the rest of the process follows-at least in a top-down approach to planning, which is what the traditional model entails. The situation analysis may also lead to adjustments to inappropriate corporate or marketing objectives. (This remains true today, al­though the nature of the analysis is changing rapidly.)
After completing these two fact-finding steps, the planner generates alternative plans or strategic options. The planner then chooses the option or set of options that best matches each market opportunity with the strengths of the organization. This is a crucial step because the organization’s distinctive competencies may be only occa­sionally and briefly aligned with those required by a dynamic external environment. Strategic planners must be ready to seize upon such opportunities as they arise. In the rest of this lesson, we will present information on how each of these steps in market planning is traditionally performed-along with ideas about how they are changing and how they need to continue to change in order to keep strategies relevant and vital.

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